Accounts Payable Process in Manufacturing Companies

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In the manufacturing sector, corporate leadership knows that managing inventory purchases while heeding the accounts payable process is not a cakewalk. Given the operational importance of this process, a lot of strategic thinking goes into how to build better and tighter ties with vendors, how to pay them on time and how to run efficient activities.

Accounts Payable Process

A company's accounts payable process incorporates things such as merchandise procurement, inventory receipt and verification, and supplier payment. Finance people often use the terms "accounts payable" and "vendor payables" interchangeably. Think of an accounts payable process -- or vendor payables cycle -- as a series of initiatives a business spearheads to order goods, check them for quality and pay suppliers on time. Personnel as varied as financial managers, in-house treasurers, accounts payable clerks, cost analysts and purchasing managers weigh in on accounts payable discussions and bill payments.

Manufacturing Cycle

A manufacturing company primarily produces goods, relying on an extensive array of resources to transform raw materials into finished merchandise -- which is ready for consumption or inclusion in another organization's production cycle. An example relating to the last scenario is a tire manufacturer on which a car maker relies on to complete the production cycle and propose motor vehicles that customers want and relish. If you comb through a manufacturing company's inventory statement, you'll see elements such as raw materials, work-in-process goods and finished items.

Symbiosis

A manufacturing entity's vendor payables process is a combination of operational prudence, liquidity management and internal efficiency. The process starts with purchasing managers scouting the marketplace for vendors who can deliver quality goods at affordable prices and on time. Then, acquisition administrators -- an identical term for purchasing managers -- pass the list of selected suppliers to personnel as diverse as manufacturing foremen, corporate treasurers and cost analysts. The third step in the process ensures that vendors ship required merchandise within the allocated time frame. An important aspect of this phase pertains to tools and approaches a company puts into place to control the quality of items, as well as the grievance system it creates to identify, follow up on and resolve delivery issues. The final step is the payment of money owed vendors.

Financial Implications

The vendor payables cycle touches on bookkeeping and financial reporting. When a company receives goods and promises to pay at a later date, a bookkeeper credits the vendor payables account and debits the merchandise account. The last account is part of a corporate balance sheet, similar to accounts payables.

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